Attorney general files royalties lawsuit against Chesapeake Energy

The state attorney general has filed a lawsuit that seeks millions of dollars in restitution from Chesapeake Energy Corp. after the company allegedly underpaid gas royalties to landowners.

Attorney General Kathleen Kane alleged the company “engaged in deceptive conduct in securing fracking leases” from landowners in the state “as part of a rush to lock up acreage in the Marcellus shale region.”

As of the end of 2014, the company had 835 active wells in Pennsylvania, including 12 in Beaver County, according to the Department of Environmental Protection.

The lawsuit is the result of an extensive investigation by the attorney general and seeks restitution for thousands of landowners in the state who signed leases with Chesapeake.

Kane alleged that Chesapeake has been accused of similar tactics in other states, as well.

“This lawsuit should serve as notice that we will not allow our residents to be exploited,” she said.

According to Kane, Chesapeake representatives obtained gas leases and promised landowners a certain amount in royalties but then delivered a lower amount once the wells started producing gas.

The company also allegedly took deductions for post-production expenses from royalty checks even though landowners’ contracts contained language prohibiting those deductions.

Beaver attorney Albert Torrence has been involved in the oil and gas industry for several years and confirmed Wednesday he has several clients who are in the process of challenging Chesapeake’s royalty payments.

He said Chesapeake is one of the major players in the gas industry in Beaver County, with Range Resources being the other.

“Chesapeake was very active in the acquisition phase, meaning they proceeded to acquire thousands of acres and put them under lease for the purpose of combining those acres for drilling units,” he said.

“There are some people in Beaver County receiving royalty payments because the wells are actually producing,” he said. “But there are many more who are under lease but don’t have wells currently producing gas.”

Many Beaver County residents signed “net leases,” which permits a gas company to deduct post-production costs from royalty payments after the fact. Those kinds of leases were the ones investigated by Kane.

Gordon Pennoyer, a spokesman for Chesapeake Energy, said in a short statement the company will defend itself in court.

“We strongly disagree with Attorney General Kane’s baseless allegations and will vigorously contest them in the appropriate forum,” he said.

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